Property ValuationIntermediateDelaware Exam
What is the principle of substitution in real estate appraisal?
AA buyer will pay no more for a property than the cost of acquiring an equally desirable substituteCorrect
BSimilar properties should sell for similar prices in the same market
CThe value of one property is enhanced by the presence of better properties nearby
DValue is created by the expectation of future benefits
Why A buyer will pay no more for a property than the cost of acquiring an equally desirable substitute Is Correct
Answer A: A buyer will pay no more for a property than the cost of acquiring an equally desirable substitute
The principle of substitution holds that a rational buyer will pay no more for a property than the cost of acquiring an equally desirable substitute. This underpins all three approaches to value.
Exam Tip: Property Valuation
Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.
Key Property Valuation Terms in This Question
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